Trustee Tries to Recover Funding Lost After Lender Bankruptcy

Philadelphia–Roughly 22,000 people, mostly elderly, lost a total of $750 million when Philadelphia-based lender American Business Financial Services Inc. went bankrupt three years ago–and a bankruptcy trustee is now trying to get that money back.The trustee is attempting to recover the money from the investment banks that turned the American Business Financial’s loans into securities, The Wall Street Journal reports. ABFS sold notes directly to the public via newspaper ads and direct mailings to fund its operations.Those notes weren’t insured and included no collateral, so when the company went bankrupt, they were worth nothing.The trustee says that the investment banks helped keep the ABFS going by allowing it to overestimate its assets’ value. Bear Stearns Cos., J.P. Morgan Chase & Co., Morgan Stanley and Credit Suisse Group are defendants in the suit; all deny any wrongdoing and declined to comment.ABFS began in 1988 and went public nine years later, focusing on loans for borrowers with bad credit. From June 2004 to early 2005, the company made more than $6 billion in mostly residential subprime loans.ABFS packaged its loans into trusts, like many lenders, and used firms to sell securities based on them to investors. It also borrowed from some Wall Street investment banks handling its loan securitizations. However, unlike many lenders, ABFS also received operating cash from individual investors who had bought notes sold to the public.